Becoming the Bank with Brandon Thornberry and Will Coleman
Today, we're talking to the founders of Urban Gate Capital, an emerging leader in the private money lending space. With over 20 years of combined real estate experience, this team has funded over 100 transactions totaling more than $21 million in loan volume since launching their fund.
We'll be diving into the world of hard money lending - what it is, how it works, and why the founders saw an opportunity to enter this high-yield specialty finance market. We'll hear about their journey from seasoned real estate investors to running their own private capital lending fund.
Brandon Thornberry: Founder - Chief Credit Officer Brandon is the Founder of UrbanGate Properties, which focuses on identifying emerging markets and investing in the path of progress. Brandon spent 15+ years acquiring and renovating single family homes and multi family properties in Middle TN.
Will Coleman: Founder - Chief Executive Officer Will is responsible for the operations and investor relations. Will has 7+ years of real estate investing experience in TX & TN. In addition, Will has worked as a credit analyst at City Bank and as Director of Finance at Rand Capital, a commercial mortgage brokerage.
Learn more about Urban Gate Capital: https://www.urbangatecapital.com/
Get commercial real estate coaching, courses, and community to jumpstart your investment journey over at CRE Launch Pro: www.crelaunchpro.com
Key Takeaways:
Hard money lending can be a good alternative investment for earning higher returns than traditional banks, especially as banks become more restrictive. Private lenders like Urban Gate Capital can close loans faster.
Urban Gate Capital has funded over 300 loans totaling over $33 million by structuring an evergreen debt fund to efficiently raise and deploy capital.
They emphasize conservative underwriting by ensuring loans are secured and they can recover principal if needed. Foreclosures have been rare.
Hard money can help bridge gaps for commercial deals like Peerless Mill when traditional financing falls through. Terms like interest-only can make cash flow work better.
Finding quality operators is important, as most issues have come from operator performance, not property issues.
About Your Host:
Tyler Cauble, Founder & President of The Cauble Group, is a commercial real estate broker and investor based in East Nashville. He’s the best selling author of Open for Business: The Insider’s Guide to Leasing Commercial Real Estate and has focused his career on serving commercial real estate investors.
Episode Transcript:
0:00
This episode of the commercial real estate investor podcast is brought to you by cre launch Pro. This online commercial real estate program is designed to take you from beginner to pro commercial real estate investor with access to all of my courses, our online community and monthly group coaching calls. Learn how to confidently buy your first commercial property today at www dot c r e launch pro.com. Welcome back to the commercial real estate investor podcast live from the Capital Group Studios here in Nashville, Tennessee. Today we're gonna be diving into how you can become the bank. I'm here with will Coleman and Brandon Thornberry, from urban gate capital A couple of buddies of mine I've known for years. Brandon is actually a partner of mine in the peerless mill deal, if y'all are familiar with that, if you've been following for a little bit, and will and I've known each other since Gosh, what 2016 2017 Yeah, while I think the first time we met you came and spoke at a real estate investors event that I was throwing and I was back when you were working on financing. Yeah, right. It feels like forever ago. Yeah, yeah. No, gosh, it was. It was the first time I met both you and Mike Terra Bella. Really? Yeah. So it's, it's been a little while. Well, guys, I know. That's a very brief introduction of yourselves. But Brandon want you to kick it off and just kind of tell us a little bit about your background and how you wound up here.
1:14
Yeah. Thanks for having us, man. On Well, the studio looks great. So yeah, I'm Brandon Thornbury. I live here in Nashville, Tennessee. And I started out in real estate in the single family space, and in rentals and flips. And nowadays I mostly invest in multifamily and commercial and and partner with this guy will Coleman. Yeah.
1:39
Yeah, so I started working in a bank right out of college as an underwriter and was slowly building up a portfolio of single family houses, and then got a job to work. With Jake and Gino over at random in Knoxville, Tennessee, I ran their debt brokerage for a couple of years. So I've always kind of been a debt nerd. And for some reason, I've always loved lending. And as I was working at that debt brokerage, obviously trying to buy my own multifamily. And I met Brandon. And he was telling me what he was doing with private lending. And I was kind of looking for an out at the company I was with in Knoxville, and he told me what he was doing. And I was like, man, if if we partnered up and raise capital, could we build a business out of this? Yeah. He said, Yes. And we went for it. And about three years ago, and we've built a pretty incredible business in the last three years. And then I've acquired a handful of small multifamily as well, which Brandon is a partner on too. So it's, it's been a journey. It's been fun. Yeah.
2:43
So to give a little more background, because they're being a little humble in the last three years, they funded over 100 transactions. Yeah,
2:49
it wasn't that now it's probably over 300. Yeah. Well, gosh, we need to update your website. It was like a year and a half ago. Yeah, the the website is out of date.
2:58
Did $21 million is way out of date. Now,
3:01
I don't know the number, but it's probably closer to like 3300 loans. I don't even know. I mean, we're that's great market that. Yeah, that's
3:12
great. You guys, are you guys are staying active and busy. I mean, it's a great time in the market for hard money, right? Because, yes, you know, you're you're looking at how high interest rates are with a traditional loan, what their issues are with, you know, even trying to get buyers to qualify for loans at the moment. And hard money, while it is a little bit more expensive, is that much more attractive, because you guys can move so much faster. So will you kind of talk about what hard money is and how you'll operate? Sure.
3:39
I always love brand tells the origin of how we got started. So I think you'd be the best person to start, like, what attracted you to this business?
3:49
Yeah. So I, we, I started out doing this just as a side hustle. You know, so I had money on the sidelines, I was kind of, I'd always be in between kind of larger deals. I didn't want to tie up that capital. I wanted it to be relatively liquid, but also wanted to earn a good return. Right. And so I just started doing this just loaning out money on deals. And it became very apparent that I had more deals than I did dollars. So it's a good problem to have. Yeah, we're deals and dollars is always great. So that, you know, screams opportunity, right? Always. So I started partnering with just individual investors to find deals. And that's about the time that I met Will. And so I was just doing this as a like a little baby business on the side and, and Will's able to come in and turn it into like a legit business. Yeah, yeah.
4:44
I mean, that's that's the nice thing about hard money lending. Like if you want to be an investor on that side, right. It's a good alternative to commercial real estate investing or real estate investing. They're typically shorter term deals. Yeah, right. I mean, what would you say the average length of loan you're giving us like when people Typically payback. Yeah, four to six months, right? Sure. Yes. You're getting that quick turnaround getting some return on your cash. And, man, I would imagine it's a little bit better than leaving it in the bank.
5:10
That's absolutely, yeah, absolutely. Yeah.
5:13
So we'll pick up the origin story from there. So so you guys get together? And then you came on? And, you know, tell us about the machine that you've built?
5:22
Yeah, I did want to answer your question like, What is hard money lending? Yeah. Which it's, it's mostly what we do is lending for people who are fixing and flipping houses. So someone who's buying a house renovating and selling it. So like, you can get a loan from a bank, but they're going to take 30 days to close. And they may be like 70% of the purchase price, maybe a little bit more. So hard money lending is the concept of, rather than getting a loan from a bank, you can get a loan from a private individual or a private company that is not a bank. So like, we're a lender, but we're not a bank, we raise all our own capital, we don't have to take people's deposits. So we raise money from investors, we pay them return. And then we lend that money to people who are in need of a short term loan. on real estate, usually, it's fix and flip. But there's a lot of unique situations that hard money can be of use. In fact, you know, your listeners probably know peerless mill. So we, we were able to help on that project, just because you had a bank lined up last minute, they backed out, and you needed someone who could close this transaction within 30 days or something. And so we were able to come in close quickly, and then you refinance this out after four or five months. So there's a lot of unique situations that hard money can be useful for. Whereas like a bank would need 6090 days to underwrite that transaction, we're able to move much closer. And Brandon was a partner on the deal. So he knew it intimately as well. So I think it helps to talk about what hard money is. And then the origin story is, is just that. I always wanted to grow a business. And Brandon kind of had the product. And I was like, Well, let me build the systems around it. Yeah. And so yeah, in the beginning, we were partnering with individual investors. So we'd have like a $200,000 loan, we would get a $200,000 investor to fund that that project. And I've just learned by failing forward of building systems, you know, we use Asana for operations. We use Google Drive for all our documents. And it's been incredible. I mean,
7:31
yeah, now we've built a little team. Yeah, we have an account manager, we have a main underwriter on the team. So starting to grow and looking to bring on a salesperson. So yeah, that's starting to really roll.
7:44
It's really nice when your business venture starts to actually become a business and not just a day to day job. Yeah, right. Like last year was the first year since I founded the brokerage in 2018, where I didn't have to broker a single deal, because I had the team that was lined up to do everything. So I'm out here, you know, doing the podcast and the YouTube channel generating an overwhelming majority of the leads. And they're servicing them. And so it's, it's nice, because you can step away, you don't have to worry about you know, when are you going to get that next deal. Get it closed, you've got other people that are helping you.
8:15
Yep. I just recently was in the Dominican Republic. And I kind of gave the keys to the business to our loan officers named Jonathan. Shout out to Jonathan. And yeah, just kind of was like, hey, for this week, I'm out of town. I think you were out of town as well. And we're like, you know, you've got the systems, you've got the training. You can run the business for the next week. And he killed it. I mean, he stepped up big time. So it is cool. I remember just kind of, you know, not that I ever really stopped working, but just being on a beach being like, yeah, that the business is still operating.
8:52
Yeah. I like that. I was thinking also kind of back to why I started doing this as a side hustle. And, you know, I was I was doing, I was flipping homes. And I had single family rentals. But I was really wanting to transition more into commercial and multifamily, and the flipping of houses. While it's super lucrative, it takes up such a, such a huge amount of time. It takes a lot of work, it's a lot of work. It's also like, just mentally, it takes up so much mental space. And so I was like, you know, I have to eliminate something from my life, if I'm gonna grow bigger, and flipping homes was like, I need to, I need to be done with this. So lending out money was a good transition where I could still get a good return and some some income, but not have such a drain. And also you can do it from anywhere, right? You know, like flipping homes, you kinda gotta be in that market and be watching what's going on. But even if
9:55
you've got a great team, you did yeah, you got to be on top. Yeah, yeah, I saw your Was it an Instagram post here this past week where you sold your first flip,
10:03
I sold my first rental property that I bought 17 years ago. I sold a couple weeks ago. So that was a little bittersweet. Because I thanks, I remember renovating that house like by myself, just, you know, sitting on the floor and just pulling up carpet staples for hours getting ready to stay on the floors, and absolutely loved it. But yeah, it's just funny to think back to like, what you what things you did when you started? Yeah. And then you just don't kind of what you grow into? Yeah. But it's good to have those experiences and kind of learn what it takes to renovate something. Well, I was
10:40
I was having that conversation with a buddy of mine this past week, because I just I just did the built ins and my closet, built on myself. And he does the same thing, right? He loves to do his own house improvements. And he was like, it makes you really appreciate how much people charge for that, doesn't it? Yeah, because I guess it probably cost me $1,500 To do a full custom set of built ins. That would have probably cost six or $8,000. If I hired somebody else to do it. And I'm sitting there going, Yeah, if I was gonna do this for somebody else, I would have to at least charge six or 8000 Though I
11:11
think I've tiled one shower. And that was yeah, I will always hire hire a tile guy. Like that's, that's complicated. If you mess one up. Yeah, it's worse. Everything you end up in the corner is like kind of like this. Yeah, it's just like, This is my last time. I found
11:29
it ends up costing me more, I try and do it myself. So I learned very early. I'm not the Handi. As much as I would love to be I'm not the guy
11:38
was smart. Hey, understand your strengths. Yeah, that's right. So so let's talk about the fund structure. I mean, you guys decided, instead of just kind of continuing to do one offs, you were like, let's just go raise a fund. So, you know, for those that aren't familiar with how funds work, I mean, obviously, you can do a debt fund, you can do a deal by deal fund, you can do a fund that is for as many deals as you can buy with the cash that you raise, talk to us about why you decided to do a fund and kind of how you set that up and structured it.
12:07
Yeah, so the main reason of why we wanted to do a fund is like, if if a if someone came to us with a $300,000 loan request. And they said, Okay, do you have the money? We go, we think so. So then we'd have to go to our investors and go, Okay, who wants to find this deal? And it's really challenging when, you know, hard money deals need to close very quickly. So if someone needed to close in five days, I mean, so many weekends, someone, a borrower, I'm sure you can guess probably what I'm thinking would call me Friday afternoon. We need to close on Tuesday. Okay. And I'm like, okay,
12:46
and by the way, will has always found the money. I can't think of a deal we have not funded so for you. A
12:52
lot of late night phone calls.
12:53
Yeah, it's, it's one of those, I'm always I have no idea where this is going to come from. And then it just happens. But so I genuinely I have to put a presentation together over the weekend. Sunday morning, I'm texting all my investors. And then by Monday, I'm like, alright, we can do it. Whereas if you raise a fund, you can raise all the capital and have it in a pool, and then the borrower can call you and we can go, Hey, okay, we've got 700k in the fund, we can close this deal as soon as you need to go. We're still in the situation. Now we have like 3.33 point 5 million in the fund. So we're still in a position where most of the time all of that is lent out. So someone comes to us with capital, and it's all on debt, we still have to raise from individual investors.
13:35
We still have more deals than dollars. Yeah, we
13:38
still. Yeah. But it like it, at least most of the time. We have capital in the fund, like we had 277,000, our loan request today that we have capital for and as soon as we got it approved, which Brandon just said he liked it. I haven't had a chance to look at it yet. But as soon as it's approving, we have the capital ready to go. So that's really the why I know there's a second question in there. I can't wrote it was but
14:03
I'm trying to think. Remember,
14:06
that's why did you you said why did you go out and start a debt fund, but I can't remember
14:10
maybe how we structured it. Yeah, that's right. How you structured it. Yeah. Okay.
14:13
So what what is interesting about our debt fund is it's really just an evergreen equity fund. So it's, it's structured the exact same way that you would do an equity fund. We just call it a debt fund because we use it for debt but it's a 506 C accredited investor only. Evergreen debt fun, which means that there's no term to it, it goes as long as we would want it to do to be and there's really no cap to it. Like we could raise 20 million 50 million. We just reset certain caps based on our demand. And yeah, it's 506 C credit investors only 100k minimum. And yeah, it's it's a beast to get set up, but it's way better than trying to raise per deal.
14:58
Oh, yeah, no, kidding. I mean, it's all I mean, you're just trading off when you're doing the work. Right? It's on the front end. Yes. As opposed to doing it right before you close it. Yeah. So, you know, if, if I'm an investor in the fund is there like a minimum amount of time that my capital has to be with you before I can cash out? Because I mean, the nice thing about an evergreen fund, investors can kind of come and go as they as they need. Whereas, you know, typically, in a regular fund, like you're locked in five years, you're stuck? Yeah,
15:28
it's a great question. That's one of the main benefits of this product for the investor is you can invest into it. And then within a certain time period, you can get your capital back. So every hard money lender does it a little bit differently, restructure or there's a six month old. So we'd like our investors to leave the capital in the Fund for at least six months. That's because our loan terms are at least six months, or at most, six months. And then after the six months, you can withdraw your capital with a 90 day notice. There's some withdrawal penalties within the first two years. But after two years, there's no penalties. And a 90 days notice. So if, if you've got capital, and you're interested in investing, let us know.
16:09
I mean, hey, let's let's talk about what that would look like. I mean, if I if I wanted to give you guys $100,000. You know what I mean? Obviously, the nice thing about debt, right, is that you're secured by the property. Exactly. Your first position lien position. Yeah. So so let's talk about the security of the investment, and then kind of what the returns might look like. Yeah,
16:28
so I'll throw it to Brandon, just in terms of like, being first lien and then also like our underwriting process, yeah. That, you know, valuing properties and things like that. Yeah,
16:39
I think there's a lot of money raisers out there that they like to go straight to return on capital. But I think you should start with return of capital. So how are you gonna get this money back? How's it protected? And that's what we really like about this. Because like you said, We're, it's always first lien position loans. We're always very conservative on our deals. So there's a lot of deals we turned out, you know, so we're not just slinging money out there. We're very conservative on our underwriting. We're always asking the question, like, if we had to take this back, could we throw it on the market with no work? Get our principal back and pay all their interest in points? You know, could we do that? So that's a question we're always asking. So we're looking at comps and what we can unload things for. And if it doesn't pass that test, then we're we're probably not, you know, we're not doing that deal. So smart. Yeah. So you got to be conservative, right? We feel like it's a very good risk adjusted return, you know, so we pay 10% Return on on capital monthly distributions. We've never missed a monthly distribution so far. And we haven't foreclosed on a property yet. So good thing is, we have the systems in place. If we had to foreclose on a deal. You can foreclose on a property in like, 60 days, right? It's crazy, pretty quick, you know, we don't want to do that. But we have, you know, an attorney on retainer that if we have to go that route, we know how to do it, and we can execute on that. And then since it is in our backyard, you know, if we had to go and renovate that deal, we have the experience and the team to do that. So we could renovate a house and get it sold if we needed to. It's good, you got multiple, there's lots of backup plans for these deals. I don't ever want to say that returns are guaranteed. In fact, we can't say that legally. So yeah, but we feel like it's a very, very safe investment.
18:42
So just to put it in perspective, how conservative and safe their underwriting practices are. I am foreclosing on a deal that I went hard money on by myself. What a nice lesson there. And as soon as I called will because I was like, Hey, man, I think I'm gonna need some hard money to finish the rest of this out. I'm gonna own this house in cash, but I'm gonna need a construction loan. He's like, Oh, yeah, what's the address? I give him the address. And he goes, Oh, yeah. You should have called me before you got money. He's on our note, do not Windlass. Yeah. We'd like, Oh, that would have been nice to us. Yep. Should have thought about that. But I mean, that's the thing. Like that's the that's the I talked about this all the time. It's funny, I made my own mistake that I advise everybody gets. It's like if you have never done something before partner with somebody that has done it before, and ordered from them, like at least for the first deal or two deals or three deals, whatever it is, you know, if you don't know how to do a hotel partner with a guy that does, right, like that's how I learned my first development project, and here we are, like, I was supposed to foreclose on December 15. He filed for bankruptcy and sent intentionally gave the wrong address to for almost every creditor, so only one creditor actually got notice of the bankruptcy petition. We all ended up showing up to the meeting. Other creditors of course, when you know if you're not familiar with this, I know I talked a little bit about it in my office hours livestream this week. But if you're foreclosing on a house and the person that you are foreclosing on falls, bankruptcy, everything gets frozen. Yeah. So we couldn't we technically foreclosed on it because we didn't know. And went to close it out. And they're like, Oh, this is frozen in a bankruptcy. So
20:25
I always have questions about that. So I know it delays everything. But will you still be able to get the house? So
20:33
I should be able to we're talking with the trustee right now. Because that was part of the the meeting of the creditors calls like this shouldn't even be on here. I'm in first and second position on this property. And, you know, I'm the only lien holder. You know, I would like to request a continuance to finalize the foreclosure. And typically, they'll grant that there's some instances where they wouldn't. But the thing is, you'll know how much I made to this house for I paid 300. I'm basically in it for 303 15. It's worth 260. So you know, what a bankruptcy trustee will try and do is say, Okay, we could sell this property, pay off the note and make more money to pay back other creditors. But he's gonna look at this and go, oh, there's no way anybody's gonna bid more than Tyler as so we'll just give it to Tyler. Yeah. So, you know, fingers crossed. That's how it works out, we'll be able to finalize the foreclosure and get this over with and I'll be able to do a house flip. It's not exactly what I was planning on doing. When you're doing hard money. You got to be prepared for these things. Yeah.
21:31
Well, the good news is it's in a great location. Yeah. But it, it makes me think like any deals that we've had, that have gotten even like a little bit squirrely, it's always been an operator issue. Yep. It's 100%. Never been. Well, I can think of one deal that was always taught to property deal. I can think of one where it was where it was, but that operators Excellent. And they're fixing it. So any deal that we've had that's been squirrely, for the most part has been an operator issue. And so I like to say, good properties, great people. Yeah. And so that is really the deal breaker is really working with great operators.
22:14
I mean, it's the Shark Tank method, right? Sure. Yeah, you're investing in the company. But you're really investing in a team. Yeah. Who are the people that are going to pull this together? Yeah, we've got a question from Anthony, saying, where do they lead? How much experience do they require? And what are the minimum FICO and reserves? Good questions?
22:31
Yeah. So we're in all of Tennessee. I don't know if Anthony's in Tennessee, we would explore deals outside of Tennessee. But really the closer to Tennessee, the better and right now, we're really only in Tennessee. I don't see the question anymore, but that we don't have a minimum FICO. So for me, I, I just love to see a history of made payments. So like if you have a 500 credit score, but I can see on your credit, you've made all your payments, that's fine with me. In terms of reserves, I we like to make sure that you have at least enough funds to do the project and then like 20% more so if the renovation budget like if your downpayment, whatever amount of capital, you're gonna have to bring to do the downpayment, the renovation, we obviously want to make sure you have enough for that. And then like 20% On top of that,
23:24
can you give us an example of what that would look like? If it's $100,000 house and $50,000? In renovations?
23:30
Yeah, so $100,000 house $50,000 renovation, so your total cost is 150. Every deal is a little bit different for our loan terms. But for us, the ideal scenario is we'll find 100% of the purchase price, and we asked you to bring the remainder of the renovation funds. So every deal is unique, and every bar was unique. So in that deal, what we would try and do is fund 100% of the purchase, and have the borrower bring 50,000 for the renovations. So we would get the first time we work with someone we would get their credit. And we would ask for verified liquidity. So if you have 40k in the bank, it's just not a smart decision for us to make if if that's the terms of the loan, we're like, Hey, you don't have enough to fund the Reno but I would at least like to see in that example, about 70,000 So like 50k for the renovation and 20k On top of that, that might be a little tight just because most flippers have more than one project going on so we it's kind of the question of like we just want to make sure you have enough reserves to do the project and pay for whatever other classes you have going on.
24:35
We have had one at least one deal where someone ran out of money Yeah, right. And it ended up working out okay in the deal sold but it definitely was stressful. Yeah,
24:50
what happens in a case like that, like if the you know, the person you're winning money to runs out of money on the project. I mean, are you looking at them going? You need to go find some more money. From another partner, are you saying, hey, we'll give you some more money, but it's going to be expensive? I mean, how does that work?
25:05
We've done both of those things.
25:09
I think the lesson we've learned is that we would prefer for the borrowers to put some type of downpayment. So in that 150,000, we'd prefer for them to put a downpayment down and have us included in funding the renovation, I think that protects our loan a little bit more. So like, right, have them put 20k down, and then we'll fund so our loan is 80,000, they put 20k down, and then we will fund 20k of the renovation. So their their out of pocket is the same. But what that does is it keeps us a little bit more involved in the renovation process. And if they run out of money, I think route one is like, push them to go find money elsewhere, go find a partner to invest in the deal, go find, borrow money from your parents, like go sell something like that's kind of the first push. The second push would be okay, we can we can increase our loan amount by 10 to 15k. But we've had to do that twice. And
26:12
so bad out of 300 deals. Yeah. Typically, we're
26:15
in such a good position that we're not risking our capital. Yeah. Right. So just try and typically to help somebody out and get the get the deal done, where there are some hard money lenders that are kind of predatory. Oh, no kidding. You know, they're really kind of almost hoping that they can foreclose and take this property back. I know a few of them here. And that is not our model. But on any of those deals where that happened, if we would have foreclosed, we would have probably done really well.
26:46
In both the two deals, weeds, we had to do that or we had to increase our loan amount. We told the borrowers not to do the deal. But really, we called him and said, Hey, our loans in a good position. Like we're not worried about our loan, we're worried about you not making money. And both of them said, I think you're wrong. I'm gonna do it.
27:06
Yeah. A little less confident. Lessons Learned. On both sides. Yeah. Yeah. That's
27:14
funny. Anthony's saying he is in Georgia. So okay, yeah. Anthony maybe maybe worth going over to is it? Is it urban gate capital.com. Urban
27:25
gay capital.com. There's a button that says borrow, you can fill that form out or my emails will at Urban gate capital.com. Yet, have you look at a deal in Georgia? We've certainly done so I'm in Georgia. The closer to the the Tennessee border, the better. But yeah, well consider Georgia for sure.
27:43
Let's let's talk about commercial real estate, and hard money lending. Because, you know, obviously, we mentioned peerless, and this is a commercial real estate show. But I like to give, you know, alternative investment ideas, right? Because there are a lot of people that are putting money into hard money right now. And I think it's very smart. And as soon as I get out of this, this flip, I'm going to have to do I'm probably gonna be giving y'all some capital. That way, I don't have to even think about doing this on my own again. But what is the what is the landscape look like for hard money in commercial real estate? So, you know, from from a borrower's perspective, it's usually a lot tougher, right? Because they're much bigger dollar amounts, right? Instead of talking about $100,000, we're talking about like 2 million. But like when it comes to peerless, it was a lifesaver, right? Because we would have had to have gone back and negotiated with the seller to extend the contract a little bit longer. You know, they were not happy about that. They didn't want to deal with it. And it wasn't a very sophisticated seller. So they they were thinking, Oh, well, I'll just sell this to anybody else. Well, it's a very complicated property, it doesn't really work like that. And it came in and bridge that gap until we got our permanent financing. So you know, how, how would a borrower in commercial real estate or how should a borrower in commercial real estate approach hard money?
29:02
What do you think? Hmm,
29:04
I'm thinking about some of the deals that I've done where I've had to one in particular, I've had to go that route. So I was buying. I bought a 96 unit about a year ago. And I thought for sure one of my local lenders was going to do the loan. In fact, they indicated that they would, and I was right about we're really the bottom was falling out as far as lending. And so every 30 days, they were kind of telling me something different. Like it started out at like, we'll give you 80% I'll tell LTC and then it was well, we'll give you 70% LTC and then all of a sudden they're like we can do like 60% LTC. Oh, gosh, you know, it's a slam dunk, slam dunk deal. No, just a bank right? Yeah, I was just a bank and one that I've worked with a lot, right. So I ended up going to Lima one, which is basically They like a bigger version of what we're doing. And really company that we're modeling after that we want to grow to be a size of smart, you know, so I had to pay up for that loan, I paid nine point, my interest rate is 9.2. So it's expensive. But you know, it was a screaming deal. No, we have average rents when I bought that were 636 per unit. We're now renting at 1400. Whoa, so just
30:30
crazy. So what you're saying is you're covering your new insurance costs.
30:35
My insurance has gone down in this case it really Yeah, it went down from 40,000, a year to 30. So
30:40
I need to do a masterclass on
30:43
what happened. But, yeah, so there are situations specially where we are right now where you need to go out and get alternative financing to capitalize on deals like that, you know, so that was unfortunately probably a little bigger deal size, then we could do but that's really where we want to head is we want to be able to do starting out with small multifamily and commercial deals and grow to larger deals for sure. Yeah. What would you add to that? Anything?
31:15
I mean, I personally, am I might be biased, but I feel like at that stage, it's almost called private lending, right, rather than lending. But like, I think private lending is going to grow. And I think bank lending is going to shrink over the next 1020 years. It I might be biased and being hopeful. But I personally think private lending will be more and more common in the commercial real estate space. So just in that example, is as banks become more deposit deprived. And as banks pull back on their lending, more money is going to be put into private lending, especially because it's it's a relatively healthy return. So for example, big investors may take their capital out of banks and invest it with private lenders. So banks will have less to lend and private lenders will have more to lend. So I still think most of lending will be done by banks. But I think private lending will become more and more common in commercial real estate and in multifamily. And, yeah, we're just we're trying to be a part of that. Well,
32:20
I think there's a lot of merit to that. Because one, you know, if I'm, if I'm a wealthy investor, or if I'm just, you know, I've got $50,000 in the bank, they're giving me a quarter of a percent, right, half a percent a year, I get no benefits out of it, you know, they're always a pain to deal with overdraft fees. I mean, there's just a lot of reasons to not like banks. And you know, if a if a private debt fund is almost as liquid, right, and I could just drop the money in there, but now I'm making 10% on my money. I mean, we're talking 1,000x Plus than you're getting at some banks, why would you consider leaving it in a traditional bank? And, you know, the other thing is to from an investor's perspective. Banks are really tough to deal with. Yeah. And they're not getting any easier. And, you know, that's an industry that needs to be overhauled. Yeah, in my opinion. I mean, it's like, yeah, office kind of deserves what came to it, because it hasn't evolved since the 80s. It's time for it to change. And it just got to kick butt, you know, banking. It's like, I mean, we had peerless, right where the bank left us at the altar, right. And I had another deal. The year before, where a bank backed out the week before closing, they'd already gone through committee, they'd already approved everything, everything was lined up to go. And they just said, yeah, actually, we don't want to do this deal anymore. And, you know, that was a bank that I've done plenty of business with, and they just walked away. And I look at that I'm like, it's not worth bothering with this anymore. You know, you can always refinance into a different type of debt. Right? You can always go with life insurance or something like that. It's going to give you a more stable income. But, you know, it's tough. You know, I could see traditional banks working on refunds. But on acquisitions, I think you almost start taking a different approach. Yeah. Absolutely.
34:07
Yeah, I think I think speed is critical. And I think the people we're interacting with at banks are the salespeople, right? And then they have to take it and get it approved. And so sometimes those salespeople are going to tell you what you want to hear to get it into their pipeline. And then when it makes up the food chain, they're like, Yeah, we can't do this. So I've seen that too many times and super frustrating.
34:35
Well, it's, it's funny, like, you get a completely opposite sentiment from hard money lenders, which I actually appreciate, right? Because like the traditional lenders, the way if you're not familiar with how banking works, you've got basically a sales rep your lender, who then packages up your deal and presents it to a committee of typically old white men that have never heard your name before. Have no idea who you are, and this guy has to convince this board to give you money. Sure. You And so they're all fired up about the deal. There's no way that this isn't going to go through. We're going to do it. And you know, it doesn't get done. Yeah. Right. Whereas hard money is typically like, Yeah, we could, we could probably do this. We'll see. We'll figure it out, you know, and I'm like, okay, cool. Let's figure it out. I actually, like appreciate that a lot more, because a little more transparent. Yeah, it's just yeah, more real, I guess. Yeah.
35:21
I was thinking about that. 96 unit I bought, and I was talking with another bank around that time. And there was an article that came out something on Wall Street Journal about how Nashville's rents had declined by 1%. And he read that article, and then just, we're done. No, we're not, we're not doing this deal. And not even in Nash, it would deal wasn't even in Nashville, and 1%, Nashville equates to $18 in rent. And it's in the A Class rentals. My property was not a class. It was not in Nashville. And I could show him in that market, what I was getting in rents. And it's just, it's just crazy. That's the funny thing
36:09
to me is that that's, that is one stat out of a bunch of stats that you have to look at to determine what the market is. Yeah, it could have gone down 1%, because 10,000 units were delivered. And,
36:21
and also, we had seemed we had seen a 30% rent growth, you know, so it's like we can we can be okay, if it dials back? 1% It's fine. $80 It's not that big of a deal. Yeah. So anyways, it's, it's interesting,
36:35
if you look at the incentive structure of a bank, like their cost of capital is nothing. So they have no incentive to deploy the capital, like, obviously, they need to make money and they need to pay their expenses. But the, you know, the level of pressure and need that a private lender has to deploy their capital, because they have to provide a return is significantly higher, like, obviously, they need to be diligent and do a good job. But that's probably why they're much easier to work with is because the bank is saying how do we never ever, ever, ever lose money? Or as a private lenders, like how do we provide a risk adjusted return at a reasonable speed? So I think the incentives are much more aligned for the borrower. Obviously, the private lender has to balance deploying capital, not taking too much risk, which I'm sure a lot of private lenders are doing that. So that's that's the fine line that lender, the private lenders have to walk, but the banks have to walk the line of how do we take zero risk? I am curious what you think, like, obviously commercials and a much more difficult environment, specifically office? Like do you think private lending, I guess, if a commercial property that's struggling, that they need to need to refi or they need to sell and someone needs to come by it? And like, what terms would be attractive to a borrower or from a private lender? For a commercial deal? I mean, it kind of take that question wherever you wherever you feel is necessary. Yeah.
38:09
I mean, I think it depends on exactly what you're trying to do with the property. Yeah, because there's a few different ways that I could take it. But if somebody could offer and I thought this for the longest time, if somebody could offer terms and commercial that are similar to how multifamily is done. I think they would, you'd have more deals than dollars. Right? Nice. So you know, like, if you look at multifamily deals, right, you basically get five years interest only REITs, you're not paying down the principal. And that makes your cash flow just far better, which means that you can take that cash, and put it back into the property, you don't have to bring as much on the front end, which means I can actually start to juice my returns in a different way. And then that gives me five years of rent increases value, etc, to then sell the property, pay it off and move on. So you know, to me as an investor, like if I didn't have to pay any principal, I would probably keep a 10% or 12%. Note for five years. Because I don't have to worry about the massive monthly payments that I could have. Yeah. And so that mean, that's one way for you to just say, Hey, we're gonna go raise $5 million, we're gonna leave it parked for five years at 12%, or whatever it is, what if it was a two year term? I mean, two years would be great, right? Because two years will get you through the majority of your value add. Right? I mean, if it's, if it's ground up development, totally different, right. And I know you guys probably aren't gonna be winning on that anytime soon, because that's a totally different beast. And, you know, it's, it's brutal even from the developers perspective, to be doing development, but, you know, I think if it's a value add deal, like, you know, Imperialis right. I mean, man, can you imagine what it would have been like if our permanent loan was interest only mm. For the first five years for the first two years, right, and we knew going into that, okay, we've got to refinance it, or we're gonna have to pay you guys alone extension fee and do it for another two years, whatever that ends up being. But it just gives you a lot more breathing room. And at that point, you know, the interest rate doesn't matter as much. And so I've always thought like, if I was gonna get into debt, that's kind of how I would try and do it.
40:22
What was your term with Lehman? Is it five years?
40:25
I've got three years, three years? Yeah. Yeah.
40:27
Which three years gives you a lot of comfort? Yeah. Right. Because then, you know, okay, I can definitely get it stabilized. And then seasoned, right, because two years is tough. If you're trying to stabilize and season in two years, you better knock it out of the park that first 12 months. Yeah. You know, which is, which is just tough sometimes. I mean, you can't really predict how things go. I mean, sometimes you also got extension options. Yeah. Yeah. I mean, sometimes you'll have, you know, this, this space where you're like, this is perfect, it's moving ready. You know, anybody's gonna want this, and it'll just sit there. And you've got another space that might be 1000 square feet bigger, that's, you know, completely demoed out, and you're like, nobody's gonna want this. And that's the one that come and take. Yeah, I don't know why that worked, or why that happened. But it does. So it's just tough to predict. We've got a question from Matthew saying, thanks. Thanks for all the great content. Tyler. Amazing. Absolutely. Matthew, glad you're liking it. I've got a vacant commercial space I'm looking at formerly and Arby's, currently dark. They are locked into the lease through 2027. But the issue is the bank may now be willing to lend due to the fact that RBS is only locked in for three more years, it's pretty, it's actually a pretty common problem, and single tenant Net Lease deals. So the question is, how risky would it be to go with hard money knowing I have time to find a quality tenant?
41:51
I mean, that's going to be a question for Tyler.
41:55
Kick it back to me. So I would say, you know, it probably wouldn't be the worst thing to close on the property with hard money. If I mean, the nice thing about these QSR right, fast food deals, they're typically located in strong corridors with a lot of traffic, which means that you're probably going to have a line of tenants that want to lease that from you. You know, I would, I would start the conversation with Arby's, and sieving get your hands on their financials, sometimes in the lease, they have to report their financials to the landlord. And so the landlord could give those over to you. If they are performing at or above the average, store sales for an Arby's, then I would say, chances are really good, they're going to renew, even if they say it's three years out, we cannot even remotely handle this right now, because we've got, you know, I don't know how many locations they have, but it's probably over 1000, or at least over 500. You could, you know, take the bet that they're probably going to renew. But always have a backup plan where you're talking to triple net, or single tenant Net Lease brokers that are representing other brands that might want to take that. And you probably want to do that anyway, because then you'll have a little more pressure on the Arby's to sign the lease rate that you're really going to want. Yeah, so you know, in that case, I wouldn't say, you know, do a hard money note for three years while you're trying to figure it out. Unless, of course, you could find when it's interest only for three years. But you could acquire it in hard money, and refinance. What I have seen is that lenders are typically more willing to refinance on riskier, seemingly riskier deals like that, than they are to acquire it. I don't know why that is the way that it is. But it just kind of is par for the course.
43:41
Yeah, what? What cap rate? would you guess this Arby's is? Oh,
43:47
man. So that's the funny thing to me about,
43:49
about the maybe, oh, maybe Matthew would know, and he would tell us? Yeah,
43:53
Matthew, if you know, the cap rate, let us know, I'd be I'd be curious to see what it is. That's the funny thing with these deals, because to me, you know, sometimes they're still going for like a 7% cap rate.
44:03
That's right. And that's why I asked because the problem I see with this deal, is, let's say they're offering it at a seven or an eight cap, if you got hard money, you're probably going to be paying 12 or 13, right? That's gonna be a tough deal. I don't know how you're going to make that work, you're gonna have to come up with like, 50%. And then you're gonna have to say to yourself, I feel really confident that if that Arby's leaves, I'm going to be able to increase the rent enough. So those would be my first questions on that is this good point, you know, what's the what's the cap rate? They're trying to sell it, sell it at? Maybe there's an opportunity, you know, maybe, maybe rents are low, but my guess is that if there's an Arby's type building up for sale, that it's probably at a cap rate that is not going to make sense for hard money. Yeah, I
44:50
mean, Phil, Phil Fletcher on my team represents all of our triple net investors. And he's got a group that specifically buys deals like that. They want the deals that are sub five years, he said It is an eight cap. So a cap, he so he, this group specifically goes after deals that have, you know, three years or less remaining on the term. Because they, they want to look at it and say, Okay, well we can buy it at a seven or eight cap, but it's under market by 20 or 30%. That's so then we're gonna you know, really, but they come in with a lot of cash, right? Like, that's the thing is, it's a riskier play. So you've got to come in with heavier cash. So it's not typically a good play, if you're just getting started, right, it's like a Yeah, you know, I've got enough money to just pay for the whole property, cash and take the risk if I really wanted to, kind of deal and in the problem is like at an eight cap, in my opinion, and I could be completely wrong, it's not remotely worth an eight cap, because you're not really buying the income that's coming off of that lease, if it's going to end in three years, you know, you're you're, you're really going to be paying a price per square foot. So whatever the market rate per square foot for that kind of deal in the area is plus a little bit of a bonus for whatever you're going to collect over 36 months. But you know, a lot of brokers try and just throw a cap rate on there and sell it for less. Right.
46:08
Yeah, those types of deals I'm always looking for like, is there a missed opportunity? Is there an out parcel that is included is there I doubt with an Arby's there is right, but probably too small. Some of these maybe more rural parcels that have $1 General or something like that on it, there might be land that comes with it, that you could do something with, you know, looking for something that maybe somebody else has missed?
46:32
Yeah, I agree. I mean, there's a there's a reason there's typically a lot of upside to those opportunities, right. It's a little bit riskier. But you know, if you can find a way to tap into that upside, they can be pretty lucrative deals. Absolutely. No, I Come along. Yeah. Awesome, guys. Well, what's, uh, I mean, just out of curiosity, what's the craziest deal you guys have spent money on? I mean, it sounds like y'all are really good. And you haven't had to foreclose on anybody and you don't have anything, you know, wild happening. But
47:00
can we share one that? I don't know if we can share on talking about
47:06
just don't include names and addresses? Enter the
47:11
one that I said let's make sure that it's not this. Oh. Yeah, I think so. You want to share you want me to you can share? Yeah, do you? Well, now you now you're okay about that. Sharon on here. Yeah.
47:27
I mean, it's, I think it will end up good. So yeah.
47:33
Sorry, all I know, we had a little bit of a delay there. The Internet in our office building completely went out in the middle of that live stream, right at the point where they were about to tell you what was going on with that property. And it was, it was quite a dramatic cliffhanger, but turns out one of the walls on a property that they had lent money on, ended up falling out of the building during construction. And the city did not allow them to just build the wall back they had to actually tear down the house and completely redo it, so didn't want to leave you guys on a cliffhanger with that one. Appreciate you all joining us for today's interview. You can find more on urban gate capital at Urban gate capital.com. Shout out to Brandon and Willa for joining me in the studio today. And we'll see you guys next time. This episode of the commercial real estate investor podcast is brought to you by cre launch Pro. This online commercial real estate program is designed to take you from beginner to pro commercial real estate investor with access to all of my courses, our online community and monthly group coaching calls. Learn how to confidently buy your first commercial property today at www dot c r e launch pro.com
This conversation explored how Neighbor.com helps commercial real estate investors unlock hidden value in their properties through self-storage and vehicle parking solutions. It also discussed trends in the storage industry and opportunities to generate new income streams from underutilized spaces in offices, multifamily, and other commercial asset types.